DARRIN T. MISH: That would be me welcome to the IRS Solution Attorney show I am THE host the IRS Solution Attorney Darrin T. Mish.
KATRINA MADEWELL: The host with the most and I’m your co-host Katrina Madewell thanks so much for joining us this morning.
DARRIN T. MISH: How are you doing today?
KATRINA MADEWELL: I’m doing great. I actually got here early but you thought I didn’t he was so trying to throw me under the bus because he thought I was late but I actually went to Starbucks on Fourth St. which is the slowest Starbucks ever. Sorry to throw you guys under the bus but.
PAT GEORGE: Yeah apparently because you were there at 8:35.
KATRINA MADEWELL: Yeah 8:30.
PAT GEORGE: Oh wow.
DARRIN T. MISH: I think this is all just an elaborate hoax to explain why she rolled in late.
KATRINA MADEWELL: Just to try to make you nervous.
PAT GEORGE: No, she went to Starbucks because I just had that delicious sandwich she gave me and I was starving, but not anymore.
DARRIN T. MISH: Well I don’t dispute that she went to Starbucks I just dispute that she was there that early.
KATRINA MADEWELL: Ok look we are live on Facebook see here is my cup I really did and it’s totally full, it’s dripping I hope there is not a hole in this cup but anyway so. Welcome to morning radio we are going to talk about…
DARRIN T. MISH: The things that we discuss on the air live, valuable air time, valuable drive time we are talking about a leaky cup.
KATRINA MADEWELL: You know we got to keep it fun too Darrin you know.
DARRIN T. MISH: Understood.
KATRINA MADEWELL: It’s not all business all the time.
DARRIN T. MISH: No, no absolutely not.
KATRINA MADEWELL: But the topic of today’s show is The IRS Fresh Start Initiative which I have no clue what that is. So I’m just going to listen to the conversation, ask Darrin a bunch of questions and if you have a question about The IRS Fresh Start Initiative or anything that we are talking about as we are talking you can call in we are live at 888-404-1010 Pat George back there will take your call, patch you through to us 888-404-1010.
DARRIN T. MISH: So The IRS Fresh Start Initiative is one of these rare instances where the Government actually uses some pretty decent marketing you know when you think of marketing or good marketing….
KATRINA MADEWELL: Marketing? The IRS markets?
DARRIN T. MISH: Yeah, you don’t really think of the Government, any branch of the government really, do any kind of marketing right?
KATRINA MADEWELL: Especially not the IRS.
DARRIN T. MISH: So I can remember this is actually not a new thing but a lot of people talk about this on the radio the IRS Fresh Start Initiative. It came out in 2012 and I can remember distinctly in March of 2012 when this announcement was made that I was really skeptical and I’m like now come on the IRS is actually going to go easier this much easier on taxpayers then they have been for the prior you know 10 or 14 years or whatever it was in my career at that point in time.
KATRINA MADEWELL: What do you mean this much easier what is that supposed mean?
DARRIN T. MISH: Well the biggest distinction or difference in the IRS Fresh Start Initiative was how much more lenient the IRS was going to be on taxpayers who owed large balances with regard to the Offer in Compromise program. We talk about we kind of talk around the edges about the Offer in Compromise quite a bit on the show but let me kind of recap what that is so people will understand.
KATRINA MADEWELL: Yeah cause not everybody listens every day so they might not know what that is.
DARRIN T. MISH: Absolutely. I can’t blame them. So the Offer in Compromise is a program that the IRS has had around for many years and it’s basically where you could make a deal with the IRS to settle for less. I mean so when you hear…
KATRINA MADEWELL: So you have a $100,000 tax debt.
DARRIN T. MISH: Yeah you might be able to settle for you know $10,000, you might be able to settle for $100. I’ve done it.
KATRINA MADEWELL: And are those cash payments or payments over time or?
DARRIN T. MISH: There a little bit, they can be a cash offer which means it’s payable within 5 months of acceptance of the offer or it can be structured as a 24 month equal monthly installment type thing. But in this case, let me explain how the offer program used to work and then what the IRS Fresh Start Initiative did.
KATRINA MADEWELL: Ok.
DARRIN T. MISH: The way the IRS, the offer and compromise used to be calculated was they would take the taxpayers monthly disposable income and disposable income is the difference between their gross income so all the money comes in minus their allowable expenses. So the way it used to be calculated was the IRS would take their monthly disposable income multiply by 48 plus the value of their assets and that equaled the amount of their offer and compromise so let me give you an example…
KATRINA MADEWELL: So if they have $2000 they probably don’t have that much, $1000 in disposable income.
DARRIN T. MISH: Well let me make the math even easier. Let’s say they have a hundred dollars a month in disposable income.
KATRINA MADEWELL: Ok
DARRIN T. MISH: 100 times 48 and let’s assume there’s no assets that would be that their offer was $4800 and it kind of doesn’t matter how much they owe at least in this example ok so the IRS Fresh Start Initiative came out in March of 2012 and the biggest distinction was they went ahead and changed that 48 multiplier to 12 so that same person who had a hundred dollars in monthly disposable income would now, that would be multiplied by 12 instead of 48 and so that would mean that first person’s offer was $4800 after the fresh start initiative that offer is only $1200.
KATRINA MADEWELL: Alright.
DARRIN T. MISH: So really big deal. Before 2012, we did a lot of offers. We would lose a lot of offers because just the amount of money was just so high and having somebody with a hundred dollars’ monthly disposable income is not terribly common that’s just the example that I used.
KATRINA MADEWELL: Right.
DARRIN T. MISH: You have to understand that there is a pretty big distinction or pretty big exception to and that is, a lot of times we talk on the show how there is a 10-year statute of limitations for the collection of tax right so what that means is after the tax is assessed…so let’s if think of that after you start to owe…
KATRINA MADEWELL: Well this is 2016 so let’s use a bill from 2006.
DARRIN T. MISH: Ok so you file a tax return for the tax year 2006, you file a 2007 right, tax is assessed you have a bill, you have a balance due and…
KATRINA MADEWELL: I owe hundred thousand dollars in 2007 when I filed for 2006.
DARRIN T. MISH: Ok so in that scenario then most likely that collections statute is going to expire in 2017 right so you file on April 15, 2007…
KATRINA MADEWELL: So it’s from the filing date sort of?
DARRIN T. MISH: There are some exceptions to that too but they are not that interesting for the sake of live radio but yeah that’s the goal. So there’s that 10-year statute of limitations ok so here is the big exception to the offer and compromise program and that is if the monthly disposable income would be sufficient to full-pay the tax liability over the life of the statute of limitations then you don’t get your deal.
KATRINA MADEWELL: Ok so break that down…
DARRIN T. MISH: Let me give you an example.
KATRINA MADEWELL: Yeah cause that is so fast and lawyer IRS talk.
DARRIN T. MISH: Totally understand. So let’s say that you have thousand dollars’ monthly disposable income, 1000×12 is $12,000 right pretty good deal, let’s assume you owe hundred grand…
KATRINA MADEWELL: Ok.
DARRIN T. MISH: But there is 120 months left on the collections statute of limitations.
KATRINA MADEWELL: Ok.
DARRIN T. MISH: Ok well if you just paid that thousand dollars in monthly disposable income that you had over the life of the remaining number of months on the statute of limitations so 120×1000 now that would be 120,000 that’s more than you owe which is 100,000 makes sense?
KATRINA MADEWELL: Yeah I think so.
DARRIN T. MISH: So in that case you are not going to get the deal you are just going to get, they just want you to pay the thousand dollars a month and that’s something that newer practitioners in this area get tripped up on a lot, they just do the first math and they go ok great you are in great shape but they forget that if you can pay, if that’s enough to full pay over the life of the statute then the IRS isn’t going to give you the deal.
KATRINA MADEWELL: They forget all about the second part that goes into that math equation.
DARRIN T. MISH: Well I can tell you from experience you learn that rule one time and you are not likely to forget it.
KATRINA MADEWELL: Yeah taking a boo boo on one case just once.
DARRIN T. MISH: Well you know I may have learned that lesson a long time ago.
KATRINA MADEWELL: I’m sure you fixed it but.
DARRIN T. MISH: So sometimes that leads us to situations where it’s actually easier, it’s almost always easier now because of that exception, to resolve bigger cases rather than smaller cases, I say that on air a lot. Right?
KATRINA MADEWELL: Yes.
DARRIN T. MISH: And the train wreck of the week this week is actually is going to be an illustration of that I’m really proud of it because the balance is relatively low but it just so happens…
KATRINA MADEWELL: It’s the way it worked out.
DARRIN T. MISH: Yeah, just the way it worked out on this particular case. So the IRS Fresh Start Initiative was really kind of a big deal. It changed the multiplier from 48 to 12 and really what it did was it opened up the landscape to where many, many more people were eligible for offers and since then I can say in our case our success rate has gone way high because it is just much more lenient and more doable.
KATRINA MADEWELL: I’m curious the IRS probably didn’t I don’t know if they publicized it but if they tracked what they result were like the difference between the number of outstanding tax debtors that did not pay and kind of skipped out when that multiplier was 48 compared to know that it’s 12 if that percentage of people that owe is actually lower.
DARRIN T. MISH: So is the question did they accept more offers or?
KATRINA MADEWELL: So the question is; was it effective? The question is; was the IRS rule changing from 48 percent multiplier to 12 is it now, was it effective for them? Are they getting a lot more taxpayers back into the system, are they able to resolve a lot of these I didn’t pay my tax debt issues?
DARRIN T. MISH: At the break I will try to look up the stats because those stats are probably, my guess is that there’s a whole lot more offers and compromise which would meet the desired goal of getting more tax payers kind of out of the shadows and into the system, which we talked about on the show a lot that’s really what their goal is, it’s not so much about collecting a couple of thousand dollars to settle that hundred thousand dollar tax debt it’s more about getting that person to come in out of the cold and you know get back in the system so that this doesn’t go on for another 10 years.
KATRINA MADEWELL: Right.
DARRIN T. MISH: You know…
KATRINA MADEWELL: Cause the sooner they can get some tax revenue it’s better than zero.
DARRIN T. MISH: Yeah absolutely and there’s not Social Security taxes isn’t being paid there’s all kinds of tax not being paid and…
KATRINA MADEWELL: Which we talked a lot about the psyche behind if you owe a tax debt like how that kind of weighs on your brain so I mean it would imagine for any business earner, a lot of your people are small business or larger business owners, the sooner they can clear up this mess in there head the more money they are going to be able to make. Right?
DARRIN T. MISH: Absolutely. We see it all the time like once the burden, the emotional burden is lifted then they are more successful in almost every area of their life.
KATRINA MADEWELL: Yeah we did like a whole show on this once.
DARRIN T. MISH: I think we have done more than one whole show.
KATRINA MADEWELL: It’s over at where your podcast’s stored.
DARRIN T. MISH: You can find it at ITunes under the IRS Problem Solver or you can also download our app which is presently called The IRS Problem Solver all those are being changed over to The IRS Solution Attorney.
KATRINA MADEWELL: Wow. You can find everything on getirshelp.com that’s probably the simpler…
DARRIN T. MISH: Yeah that’s easier.
KATRINA MADEWELL: You are listening to the IRS Solution Attorney show we are live in studio 888-404-1010 if you have a question we are talking about The IRS Fresh Start Initiative we will be back in a moment.
KATRINA MADEWELL: Well that’s the Steve Miller band great choice, Pat. You know what’s funny is my kids like totally know all the words to Steve Miller band songs all of them.
DARRIN T. MISH: I think that is probably Chris’s influence right?
KATRINA MADEWELL: Maybe both of us, I think we both like Steve Miller.
DARRIN T. MISH: I like Steve Miller.
KATRINA MADEWELL: He’s a little bit more of the 80’s rocker.
DARRIN T. MISH: A little Peter Frampton make your guitar sing.
KATRINA MADEWELL: Yes I could see you saying that yes I can. So if you are just not tuning into the show we are talking about The IRS Fresh Start Initiative what it is, how it works, how it changed and Darrin was explaining that a couple of years ago their multiplier on how they calculate what you are going to repay changed.
DARRIN T. MISH: Absolutely in March of 2012 the IRS basically made it 75% cheaper to settle with the IRS based upon their program called the Offer and Compromise so before it would be really hard to get offers through I mean we would file a lot of offers in part because back in those days, say the early 2000’s even we could file an offer and compromise and literally it would sit on the shelf someplace for 2 years, 3 years, 4 years, 5 years it would just sit and the benefit to that was, well there was 2 benefits for a brief period of time the collection statute of limitations was running while an offer was filed which was great…
KATRINA MADEWELL: I was going to say that’s good for the taxpayer isn’t it?
KATRINA MADEWELL: So they can’t pursue you for anything new.
DARRIN T. MISH: So we may have filed some offers that were maybe a little bit aggressive or questionable because we knew it was just going to throw a monkey wrench in the system it was just going to like disappear for years at a time.
KATRINA MADEWELL: In my business we call that throwing stuff to the wall to see what sticks.
DARRIN T. MISH: Yeah well we have to be careful how I characterize that but one of the nice things that came about I think this was part of the fresh start initiative the IRS also put a 2-year time limit on offers and compromise so you might have had an offer take an average 3 plus years in the past well now the law is that they can only take 2 years’ maximum.
KATRINA MADEWELL: This is the IRS, 2 years to get to it.
DARRIN T. MISH: They only have 2 years to get to it and if they don’t get to it than your offer is deemed accepted as filed.
KATRINA MADEWELL: Wow.
DARRIN T. MISH: Which is pretty cool.
KATRINA MADEWELL: So how many of those did you get in when they changed that?
DARRIN T. MISH: Now I’m about to tell you that I have not had one that actually took the whole 2 years and I’ve never even heard of anyone that took the whole 2 years.
KATRINA MADEWELL: So even before when it sat on the shelf for 5 years?
DARRIN T. MISH: Well, back then that would happen it would just sit on the shelf for 5 years then obviously a tax payer’s financial situation would change in 5 years right so….
KATRINA MADEWELL: But they have to look at it as presented at the time you filed?
DARRIN T. MISH: Well how it works now is you file the offer and compromise and it sits again on the shelf for 6-18 months something like that and we have to update the financials usually 1 time to get a like more accurate snapshot of what’s happening.
KATRINA MADEWELL: Hey that’s less then you have to update it in the mortgage process when you are buying a house.
DARRIN T. MISH: For sure you know going through the mortgage process right now yeah an offer is way, way easier than getting a self-employed mortgage right now. But it’s similar in a lot of ways honestly, bank statements and you know all that stuff but…
KATRINA MADEWELL: First born, DNA.
DARRIN T. MISH: We did have an offer that got pretty close, we had one that got about 22-23 months and it was about a 2.2-million-dollar liability.
KATRINA MADEWELL: Oh you were just waiting, you were just watching your email and your clock.
DARRIN T. MISH: I was dying, I was wanting them to blow that but they didn’t blow it they ended up rejecting the offer and it’s under appeal now. I do think it’s going to go through but the appeal time is not part of the 2 years.
KATRINA MADEWELL: Gotcha.
DARRIN T. MISH: But they are a lot better at it. They’re, we did it….
KATRINA MADEWELL: Did they hire more people or something like increase their employees?
DARRIN T. MISH: I think they have hired more people and they kind of triage the cases in a way you know, like you know what triage is if there is a big accident you have to kind of prioritize patients in order of severity of the problem, well what the IRS does is…
KATRINA MADEWELL: Yeah like who’s leg has to be amputated first like.
DARRIN T. MISH: Yeah or this person needs treatment immediately or they are going to die, this person is just in a lot of pain and isn’t going to die you know so that, that second guy is like going to be in pain for a while but anyway.
KATRINA MADEWELL: The other guy is unconscious though that might not matter in an hour.
DARRIN T. MISH: So what the IRS does now is simpler cases go to lower level employees and they make faster decisions I mean that is the stereotype but basically that is what happens and then other cases usually with a higher dollar limit or they are self-employed and they got a lot of complications those will take longer cause those have to be farmed out to higher level employee, higher pay grade, better training what not and then those more field level type employees look at those offers. So let me give you an example, typical wage earner offer, wage earner is somebody who is a W-2 right so there is not a lot to determine in terms of their income and that’s kind of already…
KATRINA MADEWELL: Cut and dried.
DARRIN T. MISH: Cut and dried. So those offers will be filed in Memphis and they will be worked out of Memphis by somebody who I presume works out of a cubicle and is, works relatively easy offers all day. Now the same thing would happen or the same place is where we file a self-employed offer so person who is maybe running a contracting company ok, file that offer in Memphis but that thing’s not going to be worked in Memphis because the income is not cut and dried right, you have to do some averages, you have to do some analysis, you have to see if they are using you know business money for personal purposes and things like that so typically an offer like that would be, it would be farmed out to somebody here either in Florida or somebody who works exclusively Florida cases.
KATRINA MADEWELL: Is that a local IRS office that is here.
DARRIN T. MISH: Sometimes there’s actually a really good offer specialist that I enjoy working with that works out of her house in North Carolina.
KATRINA MADEWELL: Oh wow.
DARRIN T. MISH: I think she used to work here in the Florida area and then she moved to North Carolina and the government said you can go ahead and keep your job and you can work out of your house…
KATRINA MADEWELL: Keep your job.
DARRIN T. MISH: And so she works out of some office up in North Carolina but I think primarily she’s out of her house.
KATRINA MADEWELL: She’s remote.
DARRIN T. MISH: It’s kind of funny speaking…
KATRINA MADEWELL: Hey you know I went to a listing appointment the other day and they are like busting at the seams, it was a husband and wife that bought the house and their kids, now they have 3, it’s a 3 bedroom house and the husband is a pharmacist and now he works from home and he is literally in the master bedroom closet with a desk cause it has to be quiet so he locks the bedroom door and he’s like through the bathroom in the closet so that is like the running joke in their house is he comes out of the closet you know.
DARRIN T. MISH: My favorite part…
KATRINA MADEWELL: But it happens.
DARRIN T. MISH: A lot of field level employees with the IRS like revenue officers and offer specialists and things, even appeals will work out of their homes and my favorite part; and we all kind of know this and it’s accepted and it’s not a big deal but my favorite part of taking those phone calls or handling those phones calls is occasionally you will hear a dog barking.
KATRINA MADEWELL: Yes.
DARRIN T. MISH: You know and you just kind of like, it makes it a lighter kind of conversation you just kind of giggle.
KATRINA MADEWELL: Is that your co-worker?
DARRIN T. MISH: Well I’ve never said that but.
KATRINA MADEWELL: Well you know more and more people work from home they just do.
DARRIN T. MISH: I’m glad that they are working from home because they are not on the road to where I actually have to be in the morning and taking up, taking up valuable space on the roads and what not. I wish I could work from home but I have trouble because I need a really quiet environment and if I’m home then somebody is going to come and talk to me and you know.
KATRINA MADEWELL: Right.
DARRIN T. MISH: So I would probably have to lock myself in the closet too. I could really relate to that guy.
KATRINA MADEWELL: Exactly.
DARRIN T. MISH: So another part of the IRS Fresh Start Initiative that really changed was installment agreements. Prior to 2012 what’s called a streamline installment agreement we had a maximum amount of $25,000 and what a streamline installment agreement is if you could full pay within 5 years it used to be, if you could full pay that $25,000 within 5 years they would give you that installment agreement without providing detailed financials ok…
KATRINA MADEWELL: Ok.
DARRIN T. MISH: And the benefit of not providing the detailed financials is if your detailed financials showed a monthly disposable income of say $2000 a month no matter how much you owed the IRS will want you to pay that $2000 a month. Versus on a streamline for $25,000 I think your payment will be like $3-$400 a month.
KATRINA MADEWELL: I mean that kind of sounds like a win-win for everybody though because not only does the IRS not, because it is going to take them longer if they have to deep dive into all those financials and review tax returns and all that stuff it’s a win win they get their money back in 5 years the taxpayer’s back in the system, they are not totally stressed because they are not looking through every little piece of their tax return and they can just kind of move on.
DARRIN T. MISH: It’s horribly inefficient to so to do those installment agreements where you know you are trying to determine monthly disposable income and all that and that can take hours and multiple phone calls it’s just hours just on hold to do the phone call and then you can never do that phone call perfect right off the bat, there is always going to be questions and requests for additional documentation and then think about just the bad luck right with the taxpayer and the public in general so you know if theoretically you have $60,000 and the IRS does the whole monthly disposable income thing and they say you could pay us $3000 a month. Great go ahead, I mean I don’t know many people that have like $3000 sort of ear-marked budgeted laying around that they wanted to use to pay taxes.
KATRINA MADEWELL: And here’s the thing to like social media has changed the way everyone lives, the way they work, the way they do things, it has changed everything. So the last thing the IRS would want is someone’s Twitter feed blown up because they can’t buy their kids groceries because the IRS is taking all their money. I mean think about it you, laugh but it’s true.
DARRIN T. MISH: I don’t know. I don’t know if the IRS on the mackerel level is that worried about it but I understand what you are saying.
KATRINA MADEWELL: I don’t know.
DARRIN T. MISH: And I don’t know how many people would be willing to…
KATRINA MADEWELL: Until news picks that up and you know because all these news sights scoop each other, we’ve had people scoop our show and then the guest show up on the TV feeds because they scooped our show, the media scoops each other’s stuff. They do.
DARRIN T. MISH: I have some contacts in the media and when the case gets really aggrieves we go ahead and call those guys and the TV crews will roll out and get a story on the big, bad IRS is going to take an old lady’s house and things like that.
KATRINA MADEWELL: And you know it is what it is sometimes…
DARRIN T. MISH: But that may be the only card you got.
KATRINA MADEWELL: Yes, sometimes you can use it to your benefit sometimes it doesn’t do much but probably depends on also what else you are competing with in the news right.
DARRIN T. MISH: Could be.
KATRINA MADEWELL: So you are listening to the IRS Solution Attorney show I’m your co-host Katrina Madewell with Mr. Darrin T. Mish and today we are talking all about the IRS Fresh Start Initiative, been out for a couple of years, don’t talk about it a lot so we thought we would chat about it today. If you have an IRS or tax question or you owe money and you just want some specific’s or a few questions answered 888-404-1010 we got to keep Pat George awake back there so give him a call 888-404-1010 say wake up Pat, he will patch you thru. Be back in a minute.
KATRINA MADEWELL: I had a feeling that was coming.
DARRIN T. MISH: By special request.
KATRINA MADEWELL: The people watching on Facebook live can’t hear the music feed but it’s Peter Frampton. I forget what song this is; it was before I was born so I don’t have to tell you.
PAT GEORGE: Do you feel like I feel.
KATRINA MADEWELL: There you go.
DARRIN T. MISH: Though he may not be the greatest guitar player in history but that is the coolest effect of any guitar player that I’m aware of in history, he can make that thing talk that is cool.
PAT GEORGE: You know he is coming to town.
KATRINA MADEWELL: Is he still alive?
PAT GEORGE: Yes he doesn’t look like Peter Frampton he looks a lot like Dave Ramsey. He does.
DARRIN T. MISH: So when Pat said he is coming to town I looked at Katrina because I knew she was going to say is he still alive because this was before I was born.
KATRINA MADEWELL: This is how; you spend way too much time with your co-host because they know what you are going to say next.
PAT GEORGE: She barely knew Prince.
DARRIN T. MISH: I was going to say…
KATRINA MADEWELL: Oh, whatever, I knew Prince.
DARRIN T. MISH: I was going to say what you said but I didn’t want to steal your thunder because I knew you were going to say that.
KATRINA MADEWELL: No I think it’s fabulous because it reminds me of my husband now because he always knows what I’m going to say next.
DARRIN T. MISH: Even though you are pretty unpredictable at times. So let’s recap the changes to the installment agreement with the IRS over the Fresh Start Initiative.
KATRINA MADEWELL: Yeah the topic.
DARRIN T. MISH: Ok so the old rule was if you owed $25,000 or less then you could have a streamlined installment agreement which a streamlined installment agreement is where you don’t have to provide detailed financials it’s basically back then it was $25,000 divided by 60 months that is pretty much your payment.
KATRINA MADEWELL: 5 years.
DARRIN T. MISH: 5 years so the new rule is you have up to $50,000 and you could have up to 6 years.
KATRINA MADEWELL: Smack your tax debt.
DARRIN T. MISH: Your tax debt, penalties and interest and all that could be $50,000 or less divided by 72 months’ equals pretty much your installment agreement.
KATRINA MADEWELL: So you can still just say that’s still on the table you can say ok I will repay that over 5 years and be done?
DARRIN T. MISH: Mm Hmm well 6 years in this case.
KATRINA MADEWELL: 6 years.
DARRIN T. MISH: Yeah and…
KATRINA MADEWELL: Now do they stop penalties and interest and all that stuff and kind of like that’s the debt and you repay? I would imagine.
DARRIN T. MISH: Well no the penalties and interest don’t stop, the penalties will eventually sort of max out, at least most owner’s penalties will max out and if you get into that installment agreement early enough the worst penalties won’t even start but there will be penalties and interest but it’s more like paying off a credit card with a relatively modest interest rate then it is what people think.
KATRINA MADEWELL: But we haven’t talked much on the show but I know the IRS can abate some penalties and interest.
DARRIN T. MISH: They can, in fact, abate penalties and interest and…
KATRINA MADEWELL: Which means wipe away.
DARRIN T. MISH: There was a big deal, yeah abate means erase. So in the fresh start initiative there was a big deal about penalty abatement but it was really just back then for the 2011 tax year and it had to do with people who could document that they were unemployed for a certain lengthy periods of time and despite the fact that unemployment has persisted that that is no longer available and I’m not really sure why that is but so there’s basically…
KATRINA MADEWELL: Yeah let’s not change this to the political let’s just keep going.
DARRIN T. MISH: Yeah so there is basically two ways to for penalty abatement. There is one called Reasonable Cause, and reasonable cause just means you would have to have had a very good reason why you didn’t file on time, why you didn’t pay on time that kind of thing.
KATRINA MADEWELL: So what are acceptable reasons just out of curiosity?
DARRIN T. MISH: You know divorce, drug abuse, mental illness, sometimes addiction like gambling addiction, drug addiction, alcohol addiction with treatment. It doesn’t really work, I have tried where there’s an addiction and then there’s no treatment and we just want a freebie that doesn’t typically work. I also like to point out that penalty abatement for reasonable cause is typically more effective if your time frame in question is short. So one year, two years, maybe 3 years but you know people come in where they haven’t filed for 7 years, 10 years or I’m working on a case right now where I think the compliance history is bad for close to 20 years. You are not going to get a reasonable cause penalty abatement why well because…
KATRINA MADEWELL: You ignored it for 20 years.
DARRIN T. MISH: What’s the good enough reason that it took this many years to finally deal with the problem. I mean that is what’s going to happen you know when you request a penalty abatement it’s going to be denied and then when you appeal it it’s going to be denied. So reasonable cause is good for certain instances you know if you had a fire at your house or you know there was a hurricane or some natural disaster then there’s probably a pretty good thing for 1 year, maybe 2 years, maybe 3 years.
KATRINA MADEWELL: My business tanked, my husband left me, my dog died, all that.
DARRIN T. MISH: Yeah you know the oil spill might have been a good reason for some people but not usually a great thing for many years like the typically you know come into my case or my office. There is also something called First Time Penalty Abatement, first time penalty abatement is where for the prior 3 years you had no significant penalties…
KATRINA MADEWELL: Oh so it’s kind of like first time home buyers, if you haven’t owned a house in 3 years you are considered a first timer. Is that right?
DARRIN T. MISH: It’s kind of like that and it’s kind of like traffic school right where I don’t remember what the rule is for traffic school but you can go to traffic school like every 7 years or something. Well, first-time penalty abatement you just have to have had clean record for the 3 years prior to the year in question so. One of the cases that I handled I believe a gentleman had about pretty close to $50,000 in penalties for one particular year, we were able to identify that he was eligible and we got that wiped out so.
KATRINA MADEWELL: That’s pretty good.
DARRIN T. MISH: Yeah so penalty abatement is available, it’s not the sort of thing the people want it to be because if it was that easy then they wouldn’t even impose penalties because they would be meaningless because they would be really easy to wipe out and wipe away.
KATRINA MADEWELL: Unfortunately that is part of it.
DARRIN T. MISH: You know there is over 150 separate penalties that the IRS can assess that can say taxpayers.
KATRINA MADEWELL: What?
DARRIN T. MISH: Yeah it’s crazy.
KATRINA MADEWELL: We should do a show on that one time just because.
DARRIN T. MISH: And they get to pick which penalties are going to be applied.
KATRINA MADEWELL: What the taxpayers gets to pick?
DARRIN T. MISH: No the IRS gets to.
KATRINA MADEWELL: I was like, what are you talking about.
DARRIN T. MISH: No, no. So let’s talk about this new story that is kind of interesting, the fact that the IRS has shut down their electronic filing pin service.
KATRINA MADEWELL: Ok so talk about what that is. Like I know what it is because I’ve, well I haven’t experienced it personally but we have had clients that are in the process of buying a property and essentially they get ready, they give all their information and then they always pull the 4560 which is the tax transcripts so they can verify what you gave your lender is the same as what you filed with the IRS and they go oh well you already filed your tax returns in California and you got a refund and they are like no I didn’t so now they basically and the story that I’m thinking about for this particular client she even had a, like I tried to make a deposit for her and I couldn’t even do that without a pin or password or something.
DARRIN T. MISH: Yeah so electronic filing personal ID numbers are what people used authenticate tax returns that they filed online so I believe it’s the pin that you can choose when you do the electronic filing when you do your e-filing ok and what happened is back in February thieves stole over a 100,000 of these pins and it caused a really big problem within the IRS they had to shut their computer system down for quite a while.
KATRINA MADEWELL: So the thieves got the pins?
DARRIN T. MISH: The thieves got the pins and then they were just running roughshod over the IRS’s computer system and it was really kind of a big deal for our firm because that is how we are efficient is we can electronically access our client’s records via the IRS computer system, we have permission from the power of attorney and things like that and it was really kind of a hassle because we couldn’t, we couldn’t access those records for a week or two. So there’s this computer, there’s a computer monitor here in the studio that’s like right next to my head….
KATRINA MADEWELL: Pat’s moving stuff around.
DARRIN T. MISH: Pat’s supposed to use it to tell me when the breaks are and what not and he is like scrolling through pictures.
KATRINA MADEWELL: And it’s almost, mind you, it’s almost like behind Darrin yet he can still see it out of his peripheral vision and I’m like straight on looking at it and still just rolling.
DARRIN T. MISH: Yeah well there is a difference you are a pro and I’m easily distracted there was a scroll in the room and I started looking at it. So anyway the IRS has finally pulled the plug on this particular system because there is to many automated attacks using this data. So not all is lost. The only difference is now being you need to know what your prior year adjusted gross income is before you are going to be able to validate your signature and electronically access these records. So it can be really inconvenient for people who don’t have last year’s tax returns or the last filed tax return at their fingertips.
KATRINA MADEWELL: Yeah and how do you figure out what number they are looking at exactly on the tax return? The bottom number?
DARRIN T. MISH: Well the adjusted gross income is called the AGI and it’s on the very, it’s the last line on page 1 of the 1040 and it’s the first on page 2 of the 1040 and it even says AGI right there on the tax return.
KATRINA MADEWELL: That’s kind of a pain. So they just shut the whole system down because it got hacked and now they are like…
DARRIN T. MISH: Well they are trying to ratchet up security because as we know the IRS, the government and computer security are like oxymorons those two things don’t go well together because we have like servers in our basement and stuff. But any way you didn’t catch that.
KATRINA MADEWELL: Yeah I got it. There’s no basements here although I have seen a few oddly enough. Weird.
DARRIN T. MISH: I’ve seen some basements in Florida. But..
KATRINA MADEWELL: And not in North Florida either like here.
DARRIN T. MISH: Yeah I mean there is some places where the water table is…
KATRINA MADEWELL: Not incredibly smart but it’s here.
DARRIN T. MISH: So anyway so now you can still use if you have your prior years AGI you can still use the get transcript online or get transcripts by mail to get that information.
KATRINA MADEWELL: So what do they do now that they took the pin away they, weren’t they using that to file every year as well or is that gone, all that gone?
DARRIN T. MISH: Well most people’s pin quite frankly for E-Filing was 12345.
KATRINA MADEWELL: Ok.
DARRIN T. MISH: I see it all the time. It’s just because people are not imaginative, they want to be able to remember it and they don’t want to think up a unique number so I think some of this fell on the backs of the taxpayers here and I’m even guilty of it, not recently but years past I that’s what I would have done.
KATRINA MADEWELL: Hmmm.
DARRIN T. MISH: That’s what I would have done so I could remember it. But that’s also like really easy for a hacker to guess too, right?
KATRINA MADEWELL: Yeah I guess. Cause somebody like me would make a lockbox codes or something monkey cause that’s something that we would…
DARRIN T. MISH: So now the IRS is working on, we are noticing it in our practice the IRS is locking these computer systems down tighter and tighter which I suppose is good but the problem is it’s so much cheaper and more efficient to, for example, to set up an installment agreement online then it is to wait 2 hours on hold for somebody who is going to give you a hard time and take an hour and 45 minutes.
KATRINA MADEWELL: So we did have a couple of questions from listeners let’s get to those before we run out of time. We have some cool stories actually to share on our last segment so you want to stick around for that too but we have a question from Will he wants to know what’s the difference between a Levy and a Lien? We’ve answered this one a lot.
DARRIN T. MISH: I get asked this question or actually I see the people don’t understand the difference pretty much every day or at least every week. A Levy is a seizure so it’s a wage garnishment or a bank seizure you know that kind of thing and a Lien is a public notice to the world that you owe the money to the IRS so I think people get them confused because they start with L and they are kind of like 4 letters each and they…
KATRINA MADEWELL: They both have an E.
DARRIN T. MISH: Yeah exactly so I hear people use those terms interchangeably all the time and I need to actually correct them because I need to know that they know the difference but I also need to know if there was anything previously Levied means something very different than it was previously liened.
KATRINA MADEWELL: Right so when they Lien it does freeze stuff though doesn’t it, doesn’t it like freeze their house and stuff? At least right?
DARRIN T. MISH: We are not going to use the phrase freeze because it doesn’t mean anything but the Lien would keep them from selling their house without dealing with the Lien just like if there was a property tax Lien or a mechanics Lien or anything like that, that Lien would attach to that real property and cause problems and that is what it does.
KATRINA MADEWELL: We have another question from Theresa too, we are going to answer when we come back after the break but she wants to know is an S Corporation required to pay quarterly estimated taxes? If you have a question as well that you would like answered now is the time to call in because we will answer it 888-404-1010, 888-404-1010 and then our headline story just to kind of tease you guy’s you want to stick around for the break Charlie Sheen may face prison time after IRS questions his payment for sex, lovely got to love it that’s our news story. You are listening to the IRS Solution Attorney show; IRS Solution Attorney Show we will be back in a minute.
KATRINA MADEWELL: And I do know who this is. Joe Walsh. You were surprised by that weren’t you, Pat? So was Darrin. This really is my parent generation but they listened to a lot of this stuff and so some of them I know like you know Joe Walsh, Bob Segar those kinds.
DARRIN T. MISH: He was part of the Eagles right Joe Walsh?
KATRINA MADEWELL: I think so I don’t know that is a Pat George question.
PAT GEORGE: You are kidding me, Darrin.
KATRINA MADEWELL: I don’t know.
PAT GEORGE: Yes he was.
KATRINA MADEWELL: I thought so but wasn’t sure.
DARRIN T. MISH: He was with The Eagles forever.
PAT GEORGE: Right and he got a little crazy went to Viardos too much and had to go into rehab and now he is pretty clean.
DARRIN T. MISH: That’s happened to a lot of people. And it should happen to even more.
PAT GEORGE: Is should probably happen to a lot more.
KATRINA MADEWELL: Not even going to go there.
DARRIN T. MISH: Alright moving right along.
KATRINA MADEWELL: So we have had some questions, we are going to answer Theresa’s question in a minute but we had a question from one of our Facebook live listeners and Darrin I cannot see that far away so you are going to have to read the question.
DARRIN T. MISH: It says can you just say I don’t have an excuse and just pay the penalties and I would, the answer is…
KATRINA MADEWELL: This was from before.
DARRIN T. MISH: Yeah and I was say, that was over the break and I would say emphatically yes I mean that is what I would say 99 out of 100 or more taxpayers just the penalty shows up, it’s on the bill and they don’t have an excuse and they just go ahead and pay the penalty because it’s just a part of what…
KATRINA MADEWELL: Wait was that her question or was it I don’t have an excuse can we still abate the penalties? I don’t think we are clear on that question.
DARRIN T. MISH: No, it says can you just say I don’t have an excuse and just pay the penalties. So pretty simple question pretty simple answer they will definitely take your money.
KATRINA MADEWELL: Yes they will take your money yes.
DARRIN T. MISH: Now keeping in mind we talked about the offer and compromise program during the first couple segments of the show. The offer and compromise program is really awesome because it abates tax penalties and interest so for example if you owe $100,000 and you get the case settled for $3000 well then I mean that’s, it’s an abatement of $97,000 so it’s fantastic.
KATRINA MADEWELL: It’s a deal.
DARRIN T. MISH: That’s why I spend most of my time working on offers and less of my time working on abating penalties.
KATRINA MADEWELL: That makes sense to me. So Theresa’s question is, is an S Corporation required to pay quarterly estimated tax and by the way we know you guy’s listening do not want to come on the air and ask questions and that is fine you can just ask Pat and he will put it through or you can send it on Facebook and Twitter @darrin_mish we will read them on air.
DARRIN T. MISH: I’m going to give you a short answer for this question since S Corporations don’t typically have tax balances the answer is they don’t typically have to pay estimated tax payments. Now are there exceptions yes of course there’s always exceptions in the law but that’s the general rule is they don’t have to make estimated tax payments because they typically don’t owe tax because it’s what’s called a pass through entity the income passes thru the corporation to the individual shareholders and the shareholders are the ones that have to make the estimated tax payments so if the shareholder knows that he is getting this pass thru income from the S Corporation it’s the shareholder, the person, the individual person is going to be making the estimated tax payments and they’re going to have the burden not the corporation.
KATRINA MADEWELL: Well they should already be doing that as well?
DARRIN T. MISH: They should already be doing that as well.
KATRINA MADEWELL: Gotcha. So our headline news is Charlie Sheen may face prison time after the IRS questions his payments for sex. So if you have ever watched 2 and a half men well you know who Charlie Sheen is, which most people do this is not a surprise. Like his character I think was so right on time for his personality in 2 and a half men…
DARRIN T. MISH: This guy. This guy just can’t win for losing I mean and it’s really sort of a testament to the crazy lifestyle that he is living and his attitudes and what not but my favorite part of this particular news story was ok he’s under audit that’s I’m not happy about that, I mean that’s never a good thing for anybody to be audited, but this guy actually wrote off 1.7 Million dollars for what he characterized as friendly entertainment. Now that was a euphemism for….
KATRINA MADEWELL: Are we allowed to say the other stuff on air Pat? I don’t think we are. I don’t think we are allowed to say that.
PAT GEORGE: I have a don’t button if you do, don’t worry.
DARRIN T. MISH: Ok so it’s a euphemism for you know he was paying for sex and he wrote it off as 1.7 million dollars as friendly entertainment.
KATRINA MADEWELL: He got suddenly with the porn stars and the ahh fishing hooks….
DARRIN T. MISH: The story is just what he called it like it’s really creative the accountant was like Charlie, really that’s what this number is ok what are we going to call that.
KATRINA MADEWELL: Friendly entertainment.
DARRIN T. MISH: Friendly as opposed to unfriendly entertainment.
KATRINA MADEWELL: Well I mean he could have gotten more creative on the name and maybe got away with it don’t you think?
DARRIN T. MISH: Well I don’t know. But so apparently Charlie is under audit and if things don’t go well he could eventually end up in prison because you know the IRS decides that your behavior rises to the level of fraud and we talk about normal people’s audits all the time, it’s pretty rare but in a high profile case like this where you got a guy that is sort of living on the edge already he has high notoriety and then he takes really aggressive positions on his tax returns, he actually could be prosecuted as sort of a lesson to the rest of us, don’t act like Charlie.
KATRINA MADEWELL: I always thought it was kind of interesting how even though on his character on 2 and a half men like he literally hired fishing hooks for the show.
PAT GEORGE: Talking about train wrecks this, that should have been your train wreck.
KATRINA MADEWELL: I know.
DARRIN T. MISH: Well it’s about that time, it’s time for the IRS train wreck of the week this is the segment of the show where I talk about someone who came into the office and their situation, their financial situation, their tax situation was essentially a train wreck and there’s always a happy ending.
KATRINA MADEWELL: And that crash was like when they walk through the door, that is what you heard. And Darrin has to fix it.
DARRIN T. MISH: So in this particular case it was actually a referral from another lawyer that I know in the community and this gentleman is working for him. Now the taxpayer in question here is a former law enforcement officer, former swat team member so a big shout out to him for being brave enough to take that job as we know especially now…
KATRINA MADEWELL: It is a hard time to be a police officer right now let me tell you.
DARRIN T. MISH: It is a very difficult job and this particular gentleman wanted a little bit more for his family you know he was starting to get a little bit older and his body was starting to break down from all the hard training and what not so this gentleman’s actually in law school and I’m not sure the IRS ever really figured that out which would probably not have been a good fact but he owed about $32,778. Now we talked about in the first and second segments of the show that smaller cases like this are actually harder to settle with the IRS because you know I have to basically demonstrate that this particular taxpayer is not going to be able to pay that $32,778 over the life of the statute of limitations and this case was pretty close to 10 years. So I mean that’s kind of a hard battle right it’s like no this guy will never be able to pay this off within 10 years. You know $32,000 is a lot of money if you are the one that is going to pay for it but I mean if you are out driving around on the street like virtually every car was $30,000 or more when it was purchased new off the lot right?
KATRINA MADEWELL: Right.
DARRIN T. MISH: So it’s not that much money.
KATRINA MADEWELL: And if he’s swat team, police officer for any length of time he’s probably only making anywhere between 75 and a 100?
DARRIN T. MISH: Yeah I think that is probably about right and then he had a wife that was working and whatnot and. But anyway he’s in law school now, he’s working part-time, wife is not working can’t remember why, we filed an offer and compromise with the IRS for $500 because I was able to basically you know demonstrate at least initially that they had no monthly disposable income, and essentially no assets. And so we filed the offer for $500, now this offer came through really fast I mean typically a wage earner type offer is going to take about 6 months, this one took about 4 months, looks like it’s going to settle for $2,988 so…
KATRINA MADEWELL: That’s pretty good.
DARRIN T. MISH: So something a little bit under 10 cents on the dollar, smaller case, this guy’s going to pay that off within the first, you know within 5 months of acceptance of the offer and he is going to be off and running for the rest of his life.
KATRINA MADEWELL: Why do you think it would have been a big deal if they found out he was in law school?
DARRIN T. MISH: Well the IRS might have inferred that after you know he got out of law school and he became a lawyer that he would be earning a lot of money which is not necessarily true but that is what people think and so they might have tried to do what’s called a collateral agreement where they can actually do an add on to the offer where they can say ok over the next 5 years if you earn over a certain amount of money then we want some of it.
KATRINA MADEWELL: You are listening to the IRS Solution Attorney show for this week….
DARRIN T. MISH: We’re out.